IMM: DIGITAL MEDIA MASTERS: SANJAY MADAN AND TONY HSIEH: LINKEXCHANGE

Sanjay Madan and Tony Hsieh were born entrepreneurs. Roommates at Harvard University, they both took jobs at Oracle Corp. straight out of college.

In early 1996, ready to work for themselves, they founded a Web design company, creating sites for businesses in San Mateo, Calif. The pair grew frustrated, however, not being able to help clients drive traffic to their sites.

So, barely a month into their design business startup, they hit on the idea of a free online advertising network, and they quickly refocused their attention accordingly and renamed their venture LinkExhange.

While other Web sites already traded links, LinkExchange's breakthrough was its powerful revenue model, based on a 2-to-1 banner swap with network members. That is, for every two banners a member site displays, it can place one of its own elsewhere on the network. As a result, LinkExchange controls a 100% surplus inventory across the network which it can sell to outside advertisers.

In a year, the network has exploded, attracting more than 100,000 member sites, including past paying advertisers such as ABC TV, Microsoft Corp., Universal Studios and Yahoo!

Sequoia Capital recognized the value of the model immediately, recently investing $3 million venture financing in the company. LinkExchange has quickly outgrown its offices located in the founders' two-bedroom apartment, where early employees included the apartment building manager and visiting college friends. Now, expecting to have 50 employees by year's end, LinkExchange strains two floors of a building in the trendy area of San Francisco's Multimedia Gulch.

"It was nice to grow under the radar," said Mr. Madan. "We grew organically from bottom up, instead of trying to force a traditional business model onto the Net."

Rick Bruner

Betcha didn't know: Messrs. Madan and Hsieh's first partnership was a pizza parlor in their dormitory at Harvard University. They took over a failing snack bar, borrowed money from friends to buy equipment and turned it into a successful business. They later sold it for a profit, money that contributed to the startup capital for LinkExchange.